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Paul Ryan (Photo credit: Wikipedia)

In a new paper, USC law professor, Ed Kleinbard, has pored through Paul Ryan's "Roadmap for America's Future," including 100 pages of legislative language, to gain insights into the VP candidate's tax philosophy. The Roadmap would represent a radical change in our tax system--massively cutting taxes on people like Governor Romney because capital gains and dividends would be entirely exempt from tax, and raising taxes on middle-income households because there's a new cash flow tax on businesses (basically, a VAT) that would translate into higher prices or lower wages.

Despite all the detail in the Ryan plan, it shares one feature with the Romney campaign proposal in that it doesn't explain how it would offset the cost of the large tax cuts specified. When Ryan made the proposal, he instructed the CBO to assume that the plan would keep tax revenues at 19 percent of GDP (slightly higher than the historical average) even though the pieces specified would fall far short. Also, as Kleinbard notes, Ryan proposed the plan when he was a member of the minority and it had no chance at all of getting a hearing, much less being enacted. It didn't matter back then that it was politically impossible.

Nonetheless, I found Kleinbard's analysis fascinating and worth a read. Here is his summary:

The purest articulation of Paul Ryan’s fiscal belief system is his 2010 Roadmap for America’s Future. The tax provisions of this extensive proposal would convert the current personal and corporate income taxes into two consumption taxes, and repeal the gift and estate tax.

This report explains how the Roadmap, like Herman Cain’s 9-9-9 Plan, would operate in practice like a large new payroll tax. The Roadmap would directly immunize the highest labor income earners from this tax through a large reduction in the top rate of the Roadmap’s labor earnings tax, compared with current law or policy. Unlike the 9-9-9 Plan the Roadmap further would largely immunize “old” capital from the efficient (if arguably unfair) imposition of consumption tax when that capital was consumed, by providing a write-off of existing depreciable basis. And finally the Roadmap would reduce the tax burdens on the most affluent capital owners further by eliminating the gift and estate tax.

For these reasons, it is not surprising that the Roadmap contemplates an extraordinarily large redistribution of tax burdens from the affluent to middle-class and lower income Americans. For middle-class families, tax burdens would increase on the order of 50 percent. At the same time, the Roadmap’s reprioritization of government spending also would be regressive in its impact. Proponents of the Roadmap or plans like it must explain how any projected increase in economic growth will compensate the majority of Americans for shouldering more tax burdens while receiving smaller government benefits.